What impedes the revival of GSP facility by USA?

The government has finally sent the progress report on implementation of Bangladesh Action Plan 2013 for the country's ready-made garment (RMG) sector to the United States Trade Representative (USTR) in a bid to get back the suspended trade facility - Generalised System of Preferences (GSP) -- in the US market.

The commerce minister has been reported to have stated that substantial progress has been made about implementing the action plan.

However, the real scenario is yet to match well what the minister has said. Bangladesh, as reported in a section of the media, has, once again, not been able to fulfil the 'required conditions' for reinstatement of GSP status in the US markets within the stipulated deadline, mainly due to bureaucratic tangles.

The US suspended the GSP facility on June 27 last year following tragic disasters such as the Rana Plaza collapse and the Tazreen Fashions fire in the RMG sector. However, the RMG exports by Bangladesh to the USA have not been enjoying this facility for the purpose of exemption from import duties by the US government.

On its part, the USTR formulated the Bangladesh Action Plan 2013 later in last July for implementation in the RMG sector in order to get the facility revived for the purpose of other exports by Bangladesh to the US market.

On failure to appoint 200 additional inspectors, the commerce minister has said it is a hard job. The government has already appointed 67 inspectors. The country has taken an initiative to bring export processing zones (EPZs) under the Bangladesh Labour Act within a short span of time. The work on it is going on, he has added. Will such contentions of the minister concerned be enough to convince the present US administration?

This question apart, this is the second time that the government has not been able to give a positive impression about its actions - already taken or to be taken. The first progress report that was submitted in November last could not convince the US authorities to their desired extent. Then, the second deadline of April 15 was set, a month ahead of Obama administration's review of the decision on the suspension of GSP facility.

On its part, the government maintained that the delay in meeting the quota, relating to recruitment of labour inspectors, was due to the need to amend the Public Service Commission (PSC) rules to hire manpower for non-cadre posts. On appointing only 200 inspectors without amending the PSC rules, the ministry of commerce should have 80 per cent quota, instead of existing 50 per cent. As such, the government should amend the PSC rules for recruitment of non-cadre posts.

Another major condition was to amend the laws of the export processing zones (EPZs) to allow the workers of such special economic zones the right to trade union-related activities, in order to realise their demands. So far, a committee has been formed comprising the senior secretaries for amending the laws of the EPZs, according to the progress report. The government also could not nab the killers of labour leader Aminul Islam, one of the conditions for reinstatement of GSP facility by the USA. It is yet to formulate the rules needed to implement the amended labour law in factories, nine months after the amendment was passed.

Among other terms, the ministry of labour and employment could so far operationalise the database of garment factories on March 30 and withdraw cases against two labour leaders. The government has also relaxed the trade union rules and registered 127 new trade unions in 2013 in the RMG sector. It also re-registered two non-government organisations (NGOs) -- Bangladesh Centre for Worker Solidarity and Social Activities for the Environment.

The probable financial loss due to GSP suspension in terms of falling export, according to financial analysts, may be very small, at least in the short run. As RMG products of Bangladesh are not included in the list of duty-free items under the GSP facility, there will be a fall in export earnings from the USA, only to the tune of about $40 million. At present, Bangladesh exports annually about $5.0 billion worth of goods (mostly RMG products) to the USA and hence, the suspension will mean a fall in export by about 0.8 per cent.

However, this paltry $40 million may cause export loss for some small industries in the country namely those of ceramic products, tobacco, etc. Since global export of products by such industries is very small compared to that of RMG sector, such $40 million fall in export earnings will make up a much larger total export, in terms of proportion, for these small industries.

More importantly, Bangladesh's image as a trade partner of the USA will be impaired, if the suspension of the GSP facility is continued. This may discourage US and other foreign investors -- new and old -- from venturing into Bangladesh. This, in turn, may have a moderate effect on the prospects of future export growth of the country, particularly to the US market.

Although Bangladesh used to export less than 1.0 per cent of its $5.0 billion a year under the GSP facility to the US market before its suspension, the impact of the withdrawal might otherwise be significant because some other countries in the European Union (EU). Bangladesh's exports to the EU markets enjoy duty-free facility. The US decision about the GSP facility for Bangladesh might have an adverse impact on the EU market. The EU had previously cautioned Bangladesh about the possibility of removal of the facility for preferential access of Bangladeshi RMG products to the markets of its member-countries if the government did not take measures to improve the working condition in Bangladesh factories.

Such an action will undoubtedly have far-reaching consequences for the country's RMG sector which exported about $19 billion worth of products last fiscal and employs about 4.5 million people -- 80 per cent of whom are women. As a matter of fact, there will be increasing pressure on the government to improve working condition as the EU has closely been observing the situation in Bangladesh.

The suspension of the US GSP facility, according to some analysts, is little more than a symbolic action by the US government to 'punish' the factories concerned for the recent RMG factory tragedies. All eyes are now focussed on the Bangladesh government and US importers that source apparel items from Bangladesh. So far, neither side has taken any major initiative to address the poor working conditions in Bangladesh's RMG sector.

 szkhan@dhaka.net